by Alan Russell

Created on: February 25, 2010   Last Updated: February 26, 2010

The living trust is an extremely effective tool for the elimination of probate. A properly drafted and funded living trust will totally eliminate the need for the preparation of a will and the probating of that will through the legal proceeding.

Additionally, the living trust will help you maximize your “Transfer Tax Credit.” Everyone has a “transfer tax credit.” In 2009, each person had a transfer tax credit of $3.5 million. That meant that each person could transfer during their lives or through their estate up to $3.5 million without the imposition of transfer taxes which begin at 37%, increase to 55% and has a 5% surcharge on larger estates.

There are 2 exemptions to this transfer. You may transfer up to 13,000 per year to as many people as you wish and those transfers will not reduce your transfer tax credit. Also, you may transfer as much as you wish to your spouse, again, without any reduction of your transfer tax credit. Unfortunately, when you transfer all your assets to your spouse, you do not transfer your tax credit to your spouse. The transfer tax credit remains with you and cannot be transferred to a 3rd party.

In the year 2010, the transfer taxes were eliminated entirely. So, if you die in the year 2010, there are no transfer taxes [previously called “Estate Taxes”] due at all.

Unfortunately, the law, as written today, will bring back the transfer taxes in the year 2011. And, the transfer tax credit will be reduced from $3.5 million to $1 million.

Unlike a transfer of assets to your spouse, the use of the living trust allows both you and your spouse to avail yourselves of the maximum transfer tax credit. So, the use of a living trust in 2009 would allow a couple to transfer to their beneficiaries the total amount of $ 7 million without the imposition of transfer taxes. The use of the living trust in 2011 will allow a couple to transfer a total of $ 2 million without the payment of any taxes. Without the use of the trust, both the husband and wife will have a transfer tax credit of only $1 million.

The living trust will allow a couple to double and maximize their tax credit, no matter what that credit is at the time of death of the 1st spouse. With the reduction of the transfer tax credit, it is essential that all persons utilize whatever tools are available to obtain the greatest tax credit available. The living trust is one of the best tools available.

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